Macy’s Seeks to Tackle Delivery Expense, Opening 400 Toys"R"Us Shop-in-Shops

Macy’s is investing in tackling delivery expense, CFO Adrian V. Mitchell said, and plans to rollout tests this fall to support increasing pickup in stores.

The department store retailer said in its Q2 2021, delivery expense as a percent of net sales decreased approximately 310 basis points from the second quarter of 2020 and increased 170 basis points from second quarter 2019, due to the respective changes in penetration of digital sales.

To tackle delivery expense as digital orders rise, Macy’s is pursuing increasing the percent of digital orders picked up by customers at the store, Mitchell said, as “that delivery expense is free for the customer and free for us.” Macy’s is also exploring ways to improve allocations to reduce the distances that packages travel, because there's “a high correlation between distance and cost of parcel shipments,” Mitchell said.

“We're also looking at our operation and saying, ‘look if we can improve the way we allocate our inventory, we can do a much better job of reducing splits,’ which is just an extra package and much more costly to us, and that's something that we can pass on to the customer. So we do see a lot of improvement and I think, from a gross margin standpoint, really attacking that delivery expense piece is going to be an important dimension for us.”

Macy’s expects capital spend to increase from $650 million this year to approximately $1 billion annually within the next couple of years. These dollars will be heavily focused on strengthening omnichannel capabilities with investments in digital shopping experiences, data and analytics, technology infrastructure and more efficient fulfillment capabilities. The retailer expects these types of investments to represent around 75% of its total capital spend over the next two years.

The retailer sees in-store pickup as an opportunity, Mitchell said, and is doing “a number of things” to try to encourage customers to take advantage of that service. This fall, Macy’s is planning to rollout “a number of tests” to help complement this.

“We're looking at ways to improve the productivity and efficiency of all the store fulfillment activities and that includes putting in stores varying levels of automation to support pickup, speed, efficiency, and also ship-from-store capabilities,” Mitchell said. “So delivery expense is definitely something we're looking at, we're working actively, testing this fall, doing the kinds of things that will allow us to really get after the delivery expense and get that much more under control as we think about our ambition going forward.”